[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




                    ILLICIT USE OF VIRTUAL CURRENCY
                    AND THE LAW ENFORCEMENT RESPONSE

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON TERRORISM

                          AND ILLICIT FINANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 20, 2018

                               __________

      Printed for the use of the Committee on Financial Services

                           Serial No. 115-102
                           
                           
               [GRAPHIC(S) NOT AVAILABLE TIFF FORMAT]
               
               
               
                                 ________
                       
                   U.S. GOVERNMENT PUBLISHING OFFICE
                
31-491PDF                     WASHINGTON: 2019               
               
 


                HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                     Shannon McGahn, Staff Director
             Subcommittee on Terrorism and Illicit Finance

                   STEVAN PEARCE, New Mexico Chairman

ROBERT PITTENGER, North Carolina,    ED PERLMUTTER, Colorado, Ranking 
    Vice Chairman                        Member
KEITH J. ROTHFUS, Pennsylvania       CAROLYN B. MALONEY, New York
LUKE MESSER, Indiana                 JAMES A. HIMES, Connecticut
SCOTT TIPTON, Colorado               BILL FOSTER, Illinois
ROGER WILLIAMS, Texas                DANIEL T. KILDEE, Michigan
BRUCE POLIQUIN, Maine                JOHN K. DELANEY, Maryland
MIA LOVE, Utah                       KYRSTEN SINEMA, Arizona
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              RUBEN KIHUEN, Nevada
WARREN DAVIDSON, Ohio                STEPHEN F. LYNCH, Massachusetts
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 20, 2018................................................     1
Appendix:
    June 20, 2018................................................    33

                               WITNESSES
                        Wednesday, June 20, 2018

Nevano, Gregory, Deputy Assistant Director, Illicit Trade, 
  Travel, and Finance Division, Homeland Security Investigations.     5
Novy, Robert, Deputy Assistant Director, Office of 
  Investigations, United States Secret Service...................     7
Ott, Thomas, Associate Director, Enforcement Division, Financial 
  Crimes Enforcement Network.....................................     9

                                APPENDIX

Prepared statements:
    Nevano, Gregory..............................................    34
    Novy, Robert.................................................    41
    Ott, Thomas..................................................    48

              Additional Material Submitted for the Record

Pearce, Hon. Stevan:
    Written statement from Steven D'Antuono......................    55
Ott, Thomas:
    Written responses to questions for the record from 
      Representative Sinema......................................    63



 
                    ILLICIT USE OF VIRTUAL CURRENCY
                   AND THE LAW ENFORCEMENT RESPONSE

                              ----------                              


                        Wednesday, June 20, 2018

                     U.S. House of Representatives,
                                  Subcommittee on Terrorism
                                       and Illicit Finance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:04 p.m., in 
room 2128, Rayburn House Office Building, Hon. Stevan Pearce 
[chairman of the subcommittee] presiding.
    Present: Representatives Pearce, Pittenger, Tipton, 
Poliquin, Zeldin, Davidson, Budd, Maloney, Himes, Foster, 
Delaney, Sinema, Vargas, Gottheimer, and Waters.
    Also present: Representatives Scott, Velazquez, Crist, 
Heck, and Capuano.
    Chairman Pearce. The subcommittee will come to order. 
Without objection, the Chair is authorized to declare a recess 
with the subcommittee at any time. Members of the full 
committee who are not Members of the Subcommittee on Terrorism 
and Illicit Finance may participate in today's hearing. All 
Members will have 5 legislative days within which to submit 
extraneous materials to the Chair for inclusion in the record.
    This hearing is entitled, ``Illicit Use of Virtual Currency 
and the Law Enforcement Response.'' I now recognize myself for 
3 minutes to give an opening statement.
    I want to thank everyone for joining us today. Today's 
hearing is going to examine the exploitation of virtual 
currencies and how law enforcement is working to identify and 
disrupt their use to fund illicit activities through both 
mainstream and dark Web marketplaces. With today's advancements 
in the evolving world of financial technology, the ability to 
deposit, transfer, and raise money is at our fingertips. While 
this is a significant improvement for those who struggle to 
access the financial system, the ease of transacting also opens 
the doorway for abuse by bad actors.
    The appeal of virtual currencies to criminals is their 
ability to transact across the globe and the low cost of 
resolution. Virtual currencies are also well known for being 
the preferred means to purchase drugs, illicit goods, and 
criminal services from online forums on the dark Web, including 
places like the Silk Road and AlphaBay. There is also anecdotal 
evidence of terrorist groups transferring money and attempting 
to raise funds using virtual currencies.
    Moving forward, as this technology becomes cheaper and more 
prevalent globally, we must be aware of the risks, the abuse of 
the virtual currencies can pose to our financial system, 
criminal groups infect computers and networks with ransomware 
and ask for payments in virtual currency or use online 
marketplaces to buy, sell, and advertise illicit goods and 
services.
    As Members of Congress, we should work to remain as 
informed as possible about the current and emerging risks 
around us. And in fact, Members of this subcommittee have 
already been active in this arena. Last week, I was happy to 
speak in support of the FIND Trafficking Act, a bill that would 
require the Government Accountability Office to study and 
report how virtual currencies in online marketplaces can be 
used for illicit means. This bill is a first step in defining 
the issues surrounding virtual currency exploitation, as well 
as creating solutions to help law enforcement and protect our 
citizens.
    I also applaud Congressman Ted Budd for introducing the 
Financial Technology Protection Act earlier this year, which 
would bring industry insiders and Federal regulators together 
to find best practices and solutions to help our law 
enforcement solve this problem.
    Today's hearing is an opportunity to learn more about law 
enforcement's investigations and responses to the illicit use 
of virtual currencies. I hope our Members will take this chance 
to learn from our witnesses about the current issues facing law 
enforcement in the detection of criminal activity in this area 
and explore what additional tools may be necessary to combat 
threats to the U.S. financial system. We would also like to 
thank our witnesses for being here today. I look forward to 
your testimony.
    I would now recognize Mr. Foster for 5 minutes.
    Mr. Foster. Thank you, Chairman Pearce and thank you to our 
witnesses here.
    The illicit use of virtual currency is a very important 
topic. And under normal circumstances, I would say that it 
deserves our full attention. However, there are extraordinary 
circumstances today. Hundreds of children are sitting in cages 
who have been forcibly separated from their families. And so, I 
think this is really the issue that is more pressing to 
discuss.
    Mr. Nevano, as the highest ranking ICE (U.S. Immigration 
and Customs Enforcement) official who is being allowed to 
testify before Congress, we Democrats have some questions that 
we will be asking you. Just last month, ICE agents rounded up 
and incarcerated immigrants, as well as people who simply 
appeared to look like immigrants to them, in and around my 
district in Illinois and without any apparent cause or reason 
and uncertain attention paid to adequate rules and procedures.
    On our southern border, ICE agents are ripping children out 
of their parents' arms. We don't need a new law to put an end 
to this trauma and the President could very easily have put a 
stop to any of these policies with one phone call a week ago or 
simply never have put these policies in place at all. Instead, 
he chose to manufacture a humanitarian crisis that was 
unnecessary and easily preventable.
    The United States has served as a beacon of hope and 
freedom since its founding. We are watching that hope and 
freedom erode right before our eyes as thousands of these 
children spend another night in a metal cage.
    Mr. Nevano, history does not look kindly on our government 
when we do not uphold our commitment to human rights and basic 
morality. I strongly believe that the American people deserve a 
government that embodies the values on which it was founded. We 
look forward to your testimony and the answers that you will be 
providing to this committee.
    Thank you. I yield back.
    Chairman Pearce. I now recognize the gentleman from North 
Carolina, Mr. Pittenger, for 2-1/2 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman and Ranking Member 
Perlmutter for your leadership and holding this hearing today.
    Additionally, I would also like to thank our distinguished 
panelists for lending their expertise to our subcommittee this 
afternoon. Of special note is Financial Services intern and UVA 
student, Hugo Bonilla, for his exceptional research on virtual 
currencies.
    One of the greatest emerging threats to U.S. national 
security is illicit use of virtual or cryptocurrencies. 
Domestic and international law enforcement agencies have begun 
taking the steps necessary to combat this new model of criminal 
transactions. It is our duty to provide the tools and the 
oversight of said tools required to maintain our edge over our 
adversaries.
    Virtual currency, due to its higher degree of anonymity, is 
seen as a very lucrative opportunity for those with nefarious 
intentions. The risk that arises from this anonymity is that 
criminals can use virtual currencies to store and transmit 
their financial gains from illegal practices such as drug 
dealing or human trafficking. Under the guidance of the 
Department of Homeland Security (DHS), the Secret Service, and 
the National Computer Forensics Institute, they provided our 
State and local law enforcement personnel with the training 
necessary to investigate and combat cyber crime, including the 
illicit use of virtual currency. And issues like these must be 
continued and expanded by Congress to combat this emerging 
threat.
    I have hosted a dozen parliamentary intelligence security 
forums over the last 5 years in which delegates from 68 nations 
have met to address issues such as this. The United States must 
continue acting as a global leader in the realm of 
cybersecurity. It is my hope that today we can thoroughly 
examine this threat to determine what additional tools and 
resources we need to combat it.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman Pearce. The gentleman yields back.
    The Chair would now recognize the gentlelady from 
California, Ms. Waters, for 3 minutes.
    Ms. Waters. Thank you very much. Thank you for scheduling 
today's hearing to examine the illicit uses of virtual currency 
and the law enforcement response. It is alarming how virtual 
currencies, especially newer ones, are being used to finance 
terrorism, launder money, and purchase drugs and weapons on the 
dark Web.
    This is an important topic. However, it is not the only 
topic that we must discuss today. Despite the fact that the 
witness from the Department of Homeland Security works for U.S. 
Immigration and Customs Enforcement, commonly known as ICE, and 
is not the agency tasked with working on the border, it would 
be a dereliction of duty if I did not share my concerns about 
the human rights abuses occurring on our border at President 
Trump's direction and at least find out what ICE's role is in 
this issue.
    The world has watched and listened in horror and with 
overwhelming sadness as children have been ripped from their 
parents and separated from their families. They are young, 
alone, and terrified without their families and made to live in 
literal cages. It is not clear when this child abuse will end.
    The White House has made every argument it can to deflect 
the blame for their zero tolerance policy that led to the 
forcible separation of over 2,000 children from their parents 
in just 6 weeks. They have quoted the Bible, denied the policy, 
and begrudgingly acknowledged it. The President, in an attempt 
to convince the American public that up is down and down is up, 
even tried to blame Democrats for his own policy.
    This is Donald Trump's abhorrent policy. This is child 
abuse. Neither of those statements is refutable. It is time for 
the President, Department of Homeland Security Secretary 
Nielsen, and Department of Justice Attorney General Sessions to 
admit that their actions were not thought out and that the 
consequences of those actions are inhumane and completely 
inconsistent with the values of this country.
    And I am hoping that during the period where we can raise 
some questions that you will be able to help us understand what 
your role is. And with that, I yield back the balance of my 
time.
    Chairman Pearce. The gentlelady yields back.
    The Chair now welcomes the testimony of our two witnesses. 
The third is stuck in traffic reportedly somewhere on New York. 
I am assuming that is the avenue, not the city. But we will 
introduce Mr. Ott when he comes. He is representing FinCEN here 
today.
    Mr. Robert Novy is a Deputy Assistant Director of the 
United States Secret Service Office of Investigations with 
oversight of criminal investigations, operations, strategy, and 
policy related to cyber and financial crimes. Mr. Novy was 
detailed with the staff of the National Security Council at the 
White House as the Director for Cyber Security Incident 
Response, Intelligence, and Defense Policy and was the deputy 
assistant director for the Congressional Affairs and special 
agent in charge for public affairs.
    Mr. Novy has previously served as the supervisor of the 
Electronic Crimes Task Force in the New York Field Office and 
was a member of the Washington Field Office's Electronic Crimes 
Special Agent Program. In addition to his expertise on cyber 
crime, Mr. Novy served on the Presidential Protective Division 
during both the Clinton and Bush Administrations. Prior to his 
Secret Service career, Mr. Novy was an assistant branch chief 
for the U.S. Securities and Exchange Commission (SEC), also 
served in the U.S. Navy.
    Mr. Novy received his Masters of Public Administration from 
Troy State University and serves on the Board of Advisers for 
the University of Texas in Austin.
    Mr. Gregory Nevano is a Deputy Assistant Director at 
Homeland Security Investigations Illicit Trade, Travel, and 
Finance Division with oversight of all financial, narcotics, 
document and benefit fraud, criminal gang exploitation, and 
several targeting infusion centers. Previously, Mr. Nevano 
served as the chief of staff to the deputy director of the U.S. 
Immigration Customs and Enforcement, ICE, as the associate 
deputy assistant director for the Investigative Services 
Division and is the unit chief for the Asset Forfeiture Unit.
    Mr. Nevano's long career also included assignments as an 
assistant special agent in charge in the ICE Boston Field 
Office, the group supervisor of the Narcotics and Violent Gang 
Group--or group supervisor of the Operational Support Group as 
a detailee to the FBI's Joint Terrorism Task Force. Mr. Nevano 
received his Bachelors of Science in political science from 
Boston College.
    We will go ahead and introduce Mr. Ott and we will then 
just move into his testimony when he comes. But he is the 
Associate Director for the Financial Crimes Enforcement Network 
or FinCEN's Enforcement Division with oversight of the FinCEN 
Bank Secrecy Act (BSA) Compliance and Enforcement Program. Mr. 
Ott joined FinCEN in 2014 as a senior adviser to the director 
and was responsible for providing guidance on various matters 
regarding law enforcement and transnational crime.
    Prior to joining FinCEN, Mr. Ott was a prosecutor for over 
25 years with both the Tax and Criminal Divisions of the United 
States Department of Justice, most recently serving for 8 years 
as deputy chief of the Organized Crime and Racketeering 
Section. Throughout Mr. Ott's career with the DOJ, he 
prosecuted and supervised prosecutions of cases involving RICO, 
public corruption, national security, tax evasion, financial 
fraud, and money laundering. Mr. Ott received his juris 
doctorate degree from the University of Baltimore School of 
Law.
    Each of you will now be recognized for 5 minutes to give an 
oral presentation of your testimony. Without objection, each of 
your written statements will be made part of the record.
    Mr. Nevano, you are recognized for 5 minutes.

                   STATEMENT OF GREGORY NEVANO

    Mr. Nevano. Chairman Pearce, Ranking Member Perlmutter, 
distinguished Members, and my fellow law enforcement 
colleagues, thank you for the opportunity to appear before you 
today to discuss the use of virtual currency and the efforts of 
U.S. Immigration and Customs Enforcement to target and 
investigate those who exploit virtual currency to carry out 
nefarious activity.
    ICE's Homeland Security Investigations (HSI) has long stood 
at the forefront of combating transnational criminal activity 
that seeks to exploit our trade, travel, and financial systems 
for illicit purposes. HSI is the largest investigative agency 
within the U.S. Department of Homeland Security with more than 
6,000 special agents assigned to more than 200 domestic offices 
and 67 international offices in 50 countries. HSI has the 
authority to enforce more than 400 U.S. Federal statutes to 
include financial crimes and the use of virtual currency.
    Virtual currency is not a new phenomenon. Virtual currency, 
in the form of airline mileage reward programs, has been in 
existence since the early 1980's. The challenge for law 
enforcement; however, began in 2009, when Bitcoin was 
introduced as the first decentralized virtual currency. With 
its introduction, an entirely new world was created in relation 
to money laundering and financial investigations. Following its 
introduction, Bitcoin quickly became the currency of choice on 
the dark Net as buyers and sellers enjoyed the pseudo-anonymity 
it provided.
    The good news for law enforcement; however, is that despite 
the pseudo-anonymity exploited by the use of Bitcoin and other 
virtual currencies, as well as their ease to transfer at some 
point, criminals need to convert their cash into virtual 
currency or their virtual currency into cash. Whenever monetary 
exchanges are made, a choke point is created. This is the time 
when criminals are most vulnerable and can be identified by law 
enforcement means and methods.
    Utilizing the traditional investigative methods coupled 
with financial and blockchain analysis, HSI is able to disrupt 
and dismantle the criminals and the TCOs utilizing virtual 
currencies. Legitimate users of virtual currencies are more 
than willing to conduct business with a legitimate virtual 
currency exchange. Legitimate exchanges are registered with the 
U.S. Department of Treasury's Finance Crimes Enforcement 
Network also known as FinCEN.
    FinCEN issued guidance in 2013 identifying persons or 
companies involved in the exchange of virtual currency as money 
service businesses, requiring them to follow regulatory and 
reporting protocols. Those who use virtual currency for illegal 
purposes; however, more often than not stay away from 
registered exchanges in an attempt to conceal their own 
identities. Instead, these criminals look to illicit or 
unregistered peer-to-peer exchanges that don't require or ask 
for personal identifying information. They illegally generate 
revenue by charging a premium for allowing their customers to 
remain anonymous. They will sell cryptocurrencies above market 
value and buy below market value from those customers who wish 
to remain anonymous.
    As part of the commitment to combating the opioid crisis in 
the United States, HSI has engaged in a multiyear effort to 
increase its cyber-enabled workforce by training employees to 
conduct online investigations. Additionally, HSI has conducted 
virtual currency and dark Net training for Federal, State, 
local, tribal, and international partners. In Fiscal Year 2018, 
HSI has conducted more than 50 outreach and training sessions 
both nationally and internationally reaching over 4,000 law 
enforcement partners.
    HSI not only collaborates with fellow law enforcement 
agencies, we also understand the importance of partnering with 
the private industry. We expanded the focus of Operation 
Cornerstone which was created in 2003, with a primary focus and 
goal of detecting and closing vulnerabilities within the U.S. 
financial, trade, and transportation sectors. With the rapid 
growth of virtual currency and with the expansion of private 
companies involved in virtual currency, HSI has expanded 
Operation Cornerstone to include private industry involved in 
the virtual currency space.
    HSI's increased commitment to conducting virtual currency 
investigations has steadily increased as evidenced by our 
increase in training and collaboration. In Fiscal Year 2011, 
HSI initiated only one investigation of virtual currency. 
However, by 2017, we initiated 203. As of May 2018, HSI has 
already initiated 144 virtual currency investigations. With the 
increase in our investigations, HSI has also seen a large 
increase in our seizures.
    For example, in FY 2014, HSI seized 150,000 in virtual 
currency. However, by the end of Fiscal Year 2017, we seized 
nearly 7 million in virtual currency. And right now, in this 
Fiscal Year through April 2018, HSI has already seized more 
than 25 million in virtual currency. Technology will inevitably 
continue to evolve and law enforcement agencies everywhere must 
continue to adapt and evolve as well. HSI will continue to 
partner with all law enforcement agencies along with cutting-
edge technology partners.
    In closing, I appreciate your interest in the bourgeoning 
field of virtual currency and thank you again for the 
opportunity to appear before you today. I look forward to 
answering any of your questions.
    [The prepared statement of Mr. Nevano can be found on page 
34 of the Appendix.]
    Chairman Pearce. Thank you.
    Mr. Novy, you are recognized for 5 minutes.

                    STATEMENT OF ROBERT NOVY

    Mr. Novy. Chairman Pearce, Ranking Member Perlmutter, and 
Members of the subcommittee, thank you for allowing me to 
testify today.
    The challenge of the illicit use of digital currency spans 
across sectors of industry and areas of criminal law. As such, 
the response necessarily requires a whole of government 
approach. That is why I am so pleased to be here today with two 
of our partners from FinCEN and ICE. I would like to commend 
them for their important work and for continuing their 
productive partnership with us at the United States Secret 
Service.
    At its most basic level, the challenge of digital 
currencies mirror those challenges faced by the broader 
financial system. The key to success in countering crime is to 
identify the beneficiary of the crime. So, that is why we 
follow the money. This rule has held true for thousands of 
years and continues for crimes in cyberspace and crimes 
involving digital currencies.
    As one of the Nation's original investigative agencies, the 
United States Secret Service has, for over 150 years, conducted 
criminal investigations to protect the American public, 
financial institutions, and critical infrastructure from 
criminal exploitation. In 1982, the Secretary of Treasury 
directed us to investigate crimes related to electronic funds 
transfer. Two years later in 1984, Congress passed legislation 
to expand the Secret Service's responsibilities to include 
investigating a range of computer hacking and access device 
violations. And today, we have extensive authorities to 
safeguard financial and payment systems from criminal 
exploitation, especially from those enabled by the Internet.
    To perform our mission, the United States Secret Service 
has long kept pace with new technologies used by the financial 
sector. Accordingly, over the past 30 years, we have 
successfully investigated and arrested some of the world's most 
significant and most sophisticated cyber criminals. Today, with 
respect to digital currencies, our primary focus is around 
three core areas: No. 1, criminal schemes that undermine the 
integrity of the financial systems; No. 2, money laundering; 
and, No. 3, fraud schemes that include computer access device, 
identity theft, and other forms of fraud.
    Over the past decade, working with our law enforcement 
partners here and around the world, we have investigated and 
shut down two major centralized digital currencies, both of 
which supported extensive criminal activity: eGold in 2007 and 
Liberty Reserve in 2013. The Secret Service continues to work 
on a range of investigations involving digital currencies. A 
few of these cases are referenced in my written testimony.
    Let me stress, there are real and legitimate commercial 
applications for digital currencies. That said, in recent 
years, some digital currencies have been widely adopted for 
illicit purposes. For example, eGold and Liberty Reserve, two 
centralized digital currencies, were used: a) to purchase 
illicit goods and services such as drugs, credit card 
information, personally identifiable information, child 
pornography, and a range of criminal services; and, b) to 
launder illicit proceeds particularly as a means of 
facilitating overseas money transfers.
    More recently, the growing use of decentralized digital 
currencies such as Bitcoin has enabled additional criminal 
activities. These include: Cryptojacking, which is the use of 
malware or compromised websites to hijack the computing power 
of others to obtain cryptocurrencies through mining; the theft 
of crypto assets directly, generally by targeting the private 
encryption keys of users; ransomware in which digital 
currencies are demanded as part of an extortion scheme; and 
attacks on the blockchain networks themselves.
    As these decentralized currencies proliferate and evolve, 
new risks are emerging. Criminals are increasingly leveraging 
anonymity-enhanced currencies and services such as 
cryptocurrency tumblers and mixers to obscure transactions on 
the blockchain. In order to counter all these diverse illicit 
activities, effective law enforcement requires robust 
cooperation, both domestically and internationally, between law 
enforcement and regulatory agencies as well as thoughtful 
partnerships with industry.
    Consequently, the Secret Service remains squarely focused 
on hiring, developing, and retaining a skilled and experienced 
investigative workforce. We are committed to working with 
partners across the law enforcement community to jointly train 
and develop shared technical solutions. The constant 
development of investigative capabilities is how we maintain 
our ability to effectively respond to innovations of technology 
now and into the future. Lastly, continued attention is needed 
to ensure that law enforcement agencies maintain lawful access 
to critical sources of evidence regardless of where or in what 
form that information is stored.
    In closing, let me speak directly to those who seek to 
further the illicit activities through the use of digital 
currencies. As the investigative work of the United States 
Secret Service and our law enforcement partners continues to 
demonstrate, we are relentless in enforcing the law, and we 
will not be stopped by the perceived anonymity of digital 
currencies or the broader Internet.
    Thank you again for your opportunity to testify and I look 
forward to your questions.
    [The prepared statement of Mr. Novy can be found on page 41 
of the Appendix.]
    Chairman Pearce. Thank you.
    Mr. Ott, we have introduced you previously and I recognize 
that your just in time manufacturing has walked in just in 
time. If you are settled, we will recognize you for 5 minutes.

                     STATEMENT OF THOMAS OTT

    Mr. Ott. Chairman Pearce, Ranking Member Perlmutter, and 
Members of the subcommittee, thank you for inviting me to speak 
today on behalf of the Financial Crimes Enforcement Network 
commonly known as FinCEN.
    FinCEN has a leading role in the regulation of virtual 
currency activity and supports law enforcement investigations 
involving virtual currency and related financial crimes. So, I 
appreciate the opportunity to discuss our work in this space 
and the national security implications and illicit finance 
risks presented by virtual currency. FinCEN also works to 
combat the threats presented by both traditional and emerging 
payment systems while promoting responsible technological 
innovation throughout the financial sector.
    In 2011, FinCEN issued a regulation that defined money 
transmissions services as the acceptance and transmission of 
currency, funds, and other value that substitutes for currency 
by any means. The 2011 rule serves as the foundation of our 
regulation of certain virtual currency activity. In March 2013, 
FinCEN issued guidance to clarify that virtual currency 
exchangers and administrators generally qualify as money 
transmitters under the Bank Secrecy Act.
    Virtual currency payments pose illicit financing risk and 
necessitate careful assessment and mitigation. In particular, 
we are concerned about the growing use of decentralized 
convertible virtual currency to facilitate cybercrime, fraud, 
extortion, drug trafficking, money laundering, and other 
transnational crimes. FinCEN estimates that at least 4 billion 
in virtual currency has moved through the dark Net marketplaces 
since 2011. While traditional financial methods remain the 
primary vehicle for illicit activity, FinCEN believes virtual 
currency presents specific illicit finance risks and that 
without vigilance and targeted action, the scale of this 
activity could grow.
    FinCEN has increasingly prioritized identifying, tracing, 
and disrupting the flow of illicit virtual currency activity. 
To that end, FinCEN examines financial institutions for 
compliance with their regulatory obligations to prevent money 
laundering and terrorist financing. In 2014, FinCEN together 
with its delegated examiners at the IRS have conducted 
examinations at more than one-third of all registered virtual 
currency money transmitters in the United States.
    FinCEN has also taken significant enforcement actions. In 
July 2017, acting in coordination with our law enforcement 
partners, FinCEN assessed a penalty of over $110 million 
against BTC-e, an Internet-based foreign located money 
transmitter for various BSA violations. As part of this action, 
FinCEN also assessed a $12 million penalty against one of BTC-
e's operators, the highest penalty we have ever assessed 
against an individual.
    Collaboration is critical to combat the growing threats 
presented by virtual currency. Just last month, I met with my 
enforcement counterparts at the CFTC (Commodity Futures Trading 
Commission) and the SEC. My staff and others at FinCEN 
carefully and closely coordinate with these agencies on an 
ongoing basis.
    One area where we continue to work together is on the 
illicit finance risk surrounding the recent growth of the 
initial coin offerings or ICOs. While ICO arrangements vary 
and, depending on their structure, may be subject to different 
authorities, one fact remains clear: FinCEN along with our 
partners at the SEC and CFTC expect businesses involved in ICOs 
to meet all of their AML (anti-money laundering) CFT (combating 
the financing of terrorism) obligations.
    As both a former police officer and a former Federal 
prosecutor, I also want to highlight the important 
collaborations FinCEN has with our partners in law enforcement. 
FinCEN has provided support in over 100 cases since 2016. 
FinCEN's experts trace different types of virtual currency 
activities, identify suspicious sources of funds, target 
unregistered MSBs that do business in whole or in substantial 
part within the United States, and help disrupt transnational 
criminal networks operating in virtual currency.
    Foremost, among our challenges in combating this activity, 
is the lack of consistent AML CFT regulations and supervision 
of virtual currency activity in most jurisdictions around the 
world. FinCEN and other Treasury components are working with 
the Financial Action Task Force or FATF and the Egmont Group to 
engage key jurisdictions directly to address these 
vulnerabilities. FinCEN looks forward to working with the 
committee, the law enforcement partners, the public sector, and 
our regulatory partners to identify strategies to help the 
United States remain both a global hub for innovation and a 
safe and secure financial system.
    Thank you again for having me here today. I am happy to 
answer any of the questions you may have.
    [The prepared statement of Mr. Ott can be found on page 48 
of the Appendix.]
    Chairman Pearce. Thank you, Mr. Ott.
    I now recognize myself for 5 minutes for questions. Mr. 
Novy, you quote on page four of your document about the 
different cryptocurrencies, the different exchanges that exist, 
how do you--many times these are very dark--how do you go about 
establishing those? How easy is it to find out about them?
    Mr. Novy. Thank you, Mr. Chairman. So, in the Secret 
Service when we conduct our investigations, we target any and 
all technologies or currencies that can be used for illicit 
activity. And so, therefore, digital currencies or virtual 
currencies are one of those types of technologies or means of 
transacting. So, what we do is in our undercover operations or 
through our operations in our criminal investigations, we 
investigate and look for different currencies, different 
transactions, different ways that crimes are committed and then 
we look to see how they are doing it.
    We also do that through criminal informants. Criminal 
informants introduce us to those different areas as well. And 
so, that is how we learn these things.
    Chairman Pearce. I guess my question is, do you know what 
you don't know? Do you know how many currencies are out there 
that have not yet surfaced? Do you have a good feeling for that 
and how do you go about identifying them?
    Mr. Novy. That is a very good question, Mr. Chairman. The 
answer is we have an understanding that there are a lot of 
digital currencies out there. We don't know every single one of 
them. We understand a majority of the major ones, but 
currencies and coins can be created through technology. So, we 
don't know every single one of them. But through our partners 
of our Electronic Crimes Task Forces, which are both members of 
academia, of the private sector as well as other law 
enforcement, we collaborate together to learn and teach each 
other what each of us learns and that is how we keep up with 
it.
    But the answer is I couldn't tell you how many digital 
currencies or virtual currencies are out there, but as they 
come up and they are used by--
    Chairman Pearce. Yes, sure. You also quote fairly 
significant numbers of transactions and are you pretty 
comfortable that those are accurate?
    Mr. Ott, let me ask you that because I think, don't you 
have an intersection of responsibility right here at this 
point, aren't you both looking at the same issues?
    Mr. Ott. Yes, Chairman. We have, through our intelligence 
division, we regularly track the incoming BSA filings, analyze 
those based on our business rules and be able to analyze that, 
put together a piece that would disseminate that to--
    Chairman Pearce. Are you pretty comfortable that you know 
what is going on?
    Mr. Ott. The financial institutions are a very great 
partner and the best resource for that type of information. 
Yes, sir.
    Chairman Pearce. I guess one of my deeper concerns is--
well, let me switch over to a different question. Not all the 
transactions are illicit with the digital currency. Is that 
correct?
    Mr. Ott. That is correct.
    Chairman Pearce. And so, if digital currencies are used for 
legitimate transactions, how does say the IRS identify tax 
liabilities for legitimate operations if you have a digital 
currency?
    Mr. Ott. Well, again, that would be--I am not familiar with 
the IRS procedures as it responds to virtual currency. FinCEN 
focuses on money transmissions. I know that we certainly work 
very closely with all law enforcement agencies as well as--
    Chairman Pearce. OK. If I could interrupt, I am running out 
of time here. I want to drill down on this a bit. If any of you 
have an idea because this to me is one of the biggest exposures 
that we have is legitimate goods and services being bought by 
very difficult-to-track transaction methods, and, at some 
point, you undermine the entire stability of society because 
society does work with its safety nets, with government 
spending off of taxation.
    And if that becomes more difficult to pursue, if it is more 
difficult to identify what those transactions are, then, I am 
just wondering is anybody thinking about this aspect, maybe 
right now the digital currencies are not that prevalent, but in 
a matter of time, they will be unless we understand what we are 
dealing with. So, if somebody wants to wrap up in a 30-second 
answer here.
    Mr. Nevano. Chairman, I will take that question. It is my 
understanding that the IRS treats virtual currency as property 
and therefore, the sale of virtual currency actually is subject 
to capital gains tax.
    Chairman Pearce. OK. But that is assuming they can see it. 
And all of you are talking in your testimony about many of them 
are invisible. And so, how are they going to identify it as a 
property if it is not too visible. That is my question and I 
will leave it dangling in the air here.
    We go to Mr. Foster now for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman.
    Deputy Assistant Director Nevano, are you aware of any 
higher-ranking ICE officials who will be testifying before 
Congress who might address the crisis being caused by this 
Administration's polices of children being deliberately 
separated from their parents?
    Mr. Nevano. Congressman, at this time, I am not aware of 
any--
    Mr. Foster. So, you are all we have. OK.
    Now, first on the issue of family separation, I understand 
the Administration has announced plans to expand its capacity 
for holding children who have been separated from their parents 
in facilities sometimes known as ``baby jails''. And I was 
wondering if you can give this committee any further 
information about what this expanded capacity will look like. 
Specifically, will ICE be constructing more cages to separate 
children from their parents? Will this expanded capacity be in 
the same location as the children's parents where they are 
being held or elsewhere?
    And what sort of childcare training are the personnel 
running these facilities being given? And are the background 
checks for these personnel up to the standards that we expect 
for childcare in the United States?
    Mr. Nevano. Chairman, thank you for your--Congressman, 
thank you for your question. I am here to testify today 
regarding virtual currency. I work for the director within the 
Department of Homeland Security. That is Homeland Security 
Investigations and our mission is basically to combat 
transnational criminal organizations that seek to basically 
exploit our immigration customs laws.
    I do not work for the director within the Department of 
Homeland Security that handles the matters that you have 
addressed. I would be happy to take your questions back and 
have someone appropriately answer those questions, but that 
would not be me sitting in my position with Homeland Security 
Investigations.
    Mr. Foster. Yes. So, I will be submitting those for the 
record and look forward to your responses on them because this 
is just a crucial issue.
    Now, more locally in my district, ICE in the last month or 
so has executed a number of raids. ICE conducted a 6-day 
enforcement action in and around my district. I was told from 
advocates on the ground, which were later confirmed by the 
Chicago Tribune and others, that ICE agents pulled over and 
detained one Victor Cortez, a Mexican national who is here 
legally, visiting a friend in Joliet, Illinois in my district. 
Mr. Cortez was in the country legally with a valid visa and Mr. 
Cortez produced this visa for ICE agents and yet despite this, 
he was still detained for several hours.
    And so, my first question is, is it a common practice for 
ICE to pull over and detain anyone simply because they look 
Hispanic or speak with an accent?
    Mr. Nevano. Again, Congressman, I appreciate your concerns 
and your questions. I am not familiar with the situation that 
you are describing. Again, I work for the Homeland Security 
Investigations Directorate and that does not sound like 
something that HSI would have been involved in. I am happy to 
take the questions back for the record and provide you the 
answers that you require, sir.
    Mr. Foster. OK. So, this issue of pulling people over where 
they actually--there is an illegal--they are here legally and 
are being pulled over, it is a little bit personal to me. My 
wife is an immigrant from Korea, but here obviously legally. 
Can she expect also to be pulled over because someone thinks 
that she doesn't look like an American?
    Mr. Nevano. Again, Congressman, I am not familiar with the 
situation. I will tell you that all HSI agents go through 
specific training, are trained not to profile and to conduct 
targeted law enforcement investigations. Again, specific 
circumstances you are talking about, I am not prepared to 
testify here today with those circumstances, but I would be 
happy to take those questions back and provide you a response.
    Mr. Foster. Yes. I would be interested specifically on the 
profiling of Mr. Cortez. Is it a common practice for ICE to 
impersonate police officers and conduct traffic stops or is 
that part of your training as standard operating procedure?
    Mr. Nevano. Well, ICE deportation officers as well as 
special agents are considered, in our view, police officers. We 
are law enforcement officers, but to deal with the specific 
questions that you are talking about, I don't know the 
specifics. So, it is hard for me to provide you an answer 
without knowing those specifics. Again, I am happy to take 
those questions back and respond appropriately once those 
questions are submitted for the record.
    Mr. Foster. Thank you. And I also think all of Congress 
looks forward to your superiors having the courage to appear 
before Congress to answer for the outrage that is happening in 
our southern border. Thank you.
    Chairman Pearce. The gentleman yields back.
    And the Chair would now recognize the gentleman from North 
Carolina, Mr. Pittenger, for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Again, thank each of you for your statements today and your 
insights on these critical issues. I would ask you in these 
illicit cases that you have identified, are the perpetrators 
that you have previously flagged, are they suspicious? Are they 
regarded as being engaged in other activities outside of 
cryptocurrency, or is this a traditional group of people, the 
same plot of actors or is this a new breed?
    Mr. Novy. Congressman, I could take that. So, a majority of 
the cyber criminals that we go after, a majority of them are 
using some type of virtual currency to move their money, to 
launder their money, to either make sales or purchases of 
illicit items or to further their crimes. We are actually going 
after the criminals. And then, as we are going after the 
criminals, we come across the ways that they are moving money 
and the ways that they are laundering money.
    And so, as Secret Service agents, we are financial crimes 
investigators as we have been since 1865, and so, like I said 
in my testimony, we follow the money.
    Mr. Pittenger. So, these are traditional criminals that 
have been involved in previous criminality.
    Mr. Novy. They could be. They could be. But the thing is, 
sir, they are pretty sophisticated these days. These days, the 
cyber criminals of today are a little bit different than the 
bank robbers of yesterday, but they are still doing the same 
thing, trying to steal the money.
    Mr. Pittenger. Yes, sir. There is also evidence suggesting 
that cryptocurrencies are increasingly used in money laundering 
schemes by organized criminal groups. But does U.S. law 
enforcement see any trends in the use of cryptocurrencies for 
money laundering related to drug traffickers, human 
traffickers, or the trade-based money laundering?
    Mr. Nevano. As my colleague from the Secret Service stated, 
we investigate all crimes, all crimes in the dark Net. So, yes, 
we would be concerned with drug traffickers, human traffickers, 
all individuals who are involved in nefarious activity. I think 
the goal of using these cryptocurrencies is the anonymity that 
they believe it provides.
    So, we in law enforcement obviously face challenges at 
times to determine who they are. Some of these individuals 
still use traditional means such as third-party money 
laundering, trade-based money laundering. But those who want to 
be pseudo-anonymous actually use these decentralized 
cryptocurrencies to conduct their businesses on the dark Net.
    Mr. Pittenger. Do we have any estimates in terms of 
percentage, the amount of these crimes that are conducted cyber 
or otherwise with just the illicit use of cryptocurrencies? How 
much of a factor is it?
    Mr. Novy. Congressman, I can't come up with an exact 
percentage right now, but I can tell you that a good majority 
of the crimes that the Secret Service investigates, virtual 
currencies are used in those transactions, primarily because 
when they are transacting online in the dark Web or using 
criminal forums, that is how they can easily move money without 
having to talk to each other or communicate but also use 
anonymity.
    Mr. Pittenger. Do you have the legal latitude to perform 
your duties? Are there any legislative interests that you have 
that will give you greater capability to be successful in your 
duties in stopping illicit finance?
    Mr. Novy. For the Secret Service, I think I am not 
comfortable with the Secret Service suggesting that, but I will 
tell you that as technology increases, we use the laws and 
authorities that we have today. But, with that being said, we 
always have to look to see what is going to be the next crime, 
what is going to be the next step.
    And so, we would say that we are always looking to make 
sure that laws and statutes are always kept up-to-date so that 
we can maintain and keep active what we can get.
    Mr. Pittenger. Is there anything that you see now, are 
there any impediments now legally that impede your ability to 
perform?
    Mr. Novy. I would say currently--currently, I would say the 
CLOUD Act was a very good step in moving forward for us to be 
able to get access to evidence, digital evidence in such an 
area. I would say as we use that and as we move forward, I 
would look to make sure that we still maintain access to lawful 
access to digital evidence that we can get from--when we serve 
subpoenas and court orders.
    Mr. Pittenger. Yes, sir. Anybody else want to comment on 
that point?
    Well, my last question would be related to just--do you 
believe that there are additional factors that would limit 
terrorist exploitation of virtual currencies and how could they 
impact the domestic or international counterterrorism community 
focus on this front?
    Mr. Nevano. I think as we stated, all transnational 
criminal organizations, people involved in nefarious 
activities, there is obviously a desire to be anonymous and the 
use of cryptocurrencies would be one. So, I think it is 
definitely a possibility that we all need to be concerned 
about.
    Mr. Pittenger. Yes, sir. Thank you. My time is expired.
    Chairman Pearce. The gentleman's time is expired.
    The Chair would now recognize the Ranking Member of the 
full committee, Ms. Waters, for 5 minutes.
    Ms. Waters. Thank you very much.
    Mr. Nevano, I know that you are here to testify about the 
illicit use of virtual currency, but that is only one aspect of 
your job. As I see it, you are responsible--you are the Deputy 
Assistant Director responsible for the Illicit Trade, Travel, 
and Finance Division of Homeland Security Investigations and 
U.S. Immigration and Customs Enforcement. Is that right?
    Mr. Nevano. That is correct.
    Ms. Waters. OK. Can you tell me what you do with that 
aspect of your job that is described as U.S. Immigration and 
Customs Enforcement?
    Mr. Nevano. So, I work for the Department of Homeland 
Security which Immigration and Customs Enforcement is a 
directorate under the Department of Homeland Security. Within 
Immigration and Customs Enforcement, there are several 
components: Homeland Security Investigations being one, 
Enforcement Removal Operations being another. I do not work for 
Enforcement Removal Operations. I work for the criminal 
investigations side, which is Homeland Security Investigations.
    Ms. Waters. Are you familiar with the zero tolerance policy 
of the agency?
    Mr. Nevano. Yes. I have heard of it. I know it is all over 
the news.
    Ms. Waters. Well, I need you to help me understand a few 
things. If a mother and child or children go to what is known 
as a port of entry to claim amnesty, do you have anything to do 
with that at all or your department, under Immigration and 
Customs Enforcement, have anything to do with that aspect of 
the agency?
    Mr. Nevano. So, if an individual shows up at a port of 
entry and claims asylum, they would be dealt with by our 
Customs and Border Patrol, which is basically under the 
Department of Homeland Security. How my directorate would be 
involved in individuals who are claiming asylum is more from 
the fraud standpoint. If there were facilitators who are 
actually organizing frivolous claims of asylum here in the 
United States, it would be my directorate that would actually 
look into those frivolous claims, but we are not the frontline 
who are dealing with these individuals when they come--
    Ms. Waters. So, explain to me how it works. So, a mother 
and children show up at the port of entry claiming amnesty and 
as I understand zero tolerance policy, they are not facilitated 
in the way that we thought the law works. They could be subject 
to detention at that point. What happens to the child at that 
point?
    Mr. Nevano. Again, Congressman, I am not familiar with the 
current practices along the border because I do not work for 
that directorate. So, I cannot comment, but I would be happy to 
take those questions back for the record.
    Ms. Waters. You are the Deputy Assistant Director and U.S. 
Immigration and Customs Enforcement is part of your 
responsibility or oversight. Do you supervise anybody in that 
division?
    Mr. Nevano. So, again, I do work for Immigration and 
Customs Enforcement, but specifically for Homeland Security 
Investigations and we do not have people on the frontline who 
are making those determinations of admissibility when an 
individual enters the United States.
    Ms. Waters. What and how do you investigate someone who is 
claiming amnesty who is thought not to be eligible for amnesty? 
What happens to them at that point?
    Mr. Nevano. We don't investigate every single person who 
claims--
    Ms. Waters. But the ones that you do investigate, what 
happens? How do you do that?
    Mr. Nevano. We are looking more to the facilitators, the 
organizations who are exploiting these individuals who are 
claiming asylum, taking their money, filing frivolous claims. 
That is more what Homeland Security Investigations does. We are 
not looking at every single person who files an application.
    Ms. Waters. I know that you may not be looking at every 
single individual, but those that you do look at, maybe it is a 
mother with children who you think may be part of a ring where 
they are trying to get folks into the United States at the port 
of entry, you have to investigate them. You don't investigate 
all of them, but when you do, how does it work?
    What do you do from that point? And if you want to continue 
the investigation because you are suspicious, you have enough 
information that would lead you to believe that something is 
going on, what happens to the child? Who has the responsibility 
for taking the child if you are going to retain the woman or 
the family? What happens at that point?
    Mr. Nevano. Again, Congressman, I do not deal with the 
detention of individuals. Those decisions are made by another 
directorate. We are on the backend. We are investigating when 
people have already made an entry into the United States. They 
may have a hearing before an immigration judge here in the 
United States. We are not involved in that.
    Ms. Waters. So, you are not involved in the supervision of 
that aspect of your job at all. Is that right?
    Mr. Nevano. That is correct.
    Ms. Waters. Thank you very much. I yield back the balance 
of my time.
    Chairman Pearce. The gentlelady yields back.
    The Chair now recognizes the main man from Maine, Mr. 
Poliquin, for 5 minutes.
    Mr. Poliquin. Thank you very much, Mr. Chairman. Thank you, 
gentlemen, for being here very much. I appreciate it.
    You folks deal with criminal activity at the Federal level 
or from a Federal standpoint and you have a lot of tools 
available to you that we don't have up in Bangor, Maine or 
Lewiston, Maine, both of which I represent. I represent the 
rural part of Maine and Bangor and Lewiston are part of my 
district.
    Tell me a little bit about the type of training that you 
folks might extend to law enforcement officials on the ground 
at the local level in our great State and other parts of our 
country. Mr. Nevano, who wants to take a shot at that?
    Mr. Novy. I will take that one.
    Mr. Poliquin. Yes.
    Mr. Novy. So, the Secret Service, we actually have 
partnered with the State of Alabama and we have the National 
Computer Forensics Institute in Alabama.
    Mr. Poliquin. Right.
    Mr. Novy. Fantastic operation, fantastic organization and 
what we do there is we train solely State and local law 
enforcement, prosecutors, and judges. The Secret Service, we 
focus on the law enforcement portion of it while the State of 
Alabama District Attorney Association focuses on the 
prosecutors and judges.
    And what we do is we take the same level of training that 
we give our Secret Service agents and we provide that to State 
and locals especially for someone like your folks in Maine, 
upstate, downstate, wherever you are going to go. The idea is 
we are looking to train the cyber supply chain if you want to 
call it, all the way from law enforcement all the way up to 
judges so that they completely understand and we don't leave 
them alone.
    The main thing is after they get their training, they 
actually leave with the equipment that they are trained on 
because many times, they can't afford a digital forensic lab of 
their own. So, when they leave there, whatever equipment they 
are trained on, they actually get that equipment. They take it 
back to their police department and use that at their police 
department to work on any investigation. It doesn't have to be 
a cyber crime. It could be a rape. It could be a murder. It 
could be a bank robbery. It could be any type of crime.
    The main thing, though, is when it deals with cyber, cyber 
is really difficult technology and sometimes it takes a little 
bit more. And so, we don't leave people hanging out there as 
well. What we do is we connect them to our electronic crimes 
task forces. By doing that, let us say an officer in Maine has 
a hard time trying to figure out a forensic tool or something 
along those lines, we will work with them through our 
Electronic Crimes Task Force primarily in Boston, but we will 
actually send agents up to Maine if we need to, to help them 
understand. We will work whatever they need to work on.
    Mr. Poliquin. My primary constitutional responsibility, Mr. 
Novy, is to protect our families and there is no one who is 
more pro jobs, pro business, pro national security, pro 
protecting our families than I am. So, I really appreciate you 
giving me that information because it is all hands on deck. We 
have to make sure that the folks at the local level who are the 
frontline, that thin blue line, have the tools they need to do 
all of this work. And this whole cryptocurrency and everything 
else is new to a lot of folks and very complicated.
    Let me morph a little bit and maybe, Mr. Nevano, this would 
be for you, but if not, someone else jump in, ransomware where 
bad actors are able to put a virus or something else on your 
system whether it be personally or at a business and 
effectively contact you and say, ``Unless you pay us X amount 
of money, we will let this virus run rampant and destroy your 
system and interrupt your workflow'' and which could kill jobs 
and so forth and so on.
    What about the use of cryptocurrency to pay that 
ransomware--excuse me, that ransom, if you will, to remove that 
problem from your network? Do you folks run into that and how 
in the heck do you fight that? How do our folks at the local 
level fight that?
    Mr. Novy. I will take that one as well, Congressman.
    Mr. Poliquin. Thank you.
    Mr. Novy. So, ransomware, actually we believe at the Secret 
Service, has proliferated from the use of digital currencies 
because it is used in just about every payment that you can 
imagine for ransomware, and because of the anonymity and the 
quickness that you could make a transaction, that is why people 
use virtual currencies for ransomware.
    The tough thing about ransomware is it does take 
preparation. People should take into consideration basic 
cybersecurity and basic cyber practices. People should have 
backups to their systems. In the Secret Service, we have 
actually gone out and done a whole bunch of workshops all 
around the Nation with us as well as with the Financial 
Services Information Sharing Analysis Center as well as the FBI 
where we have gone and we have taught different courses and 
classes of how to defeat or how to get prepared for ransomware.
    But to answer your question, virtual currency has actually 
been the propagator for ransomware we believe.
    Mr. Poliquin. If I call Bill O'Malley who is the Chief of 
Police in Bangor or Phil Kroll who is the Chief of Police in 
Auburn, Maine, would they know who to call at your shop to get 
help for any of these issues? Are you folks pretty good as far 
as outreach to our local folks in the ground?
    Mr. Novy. Yes, absolutely. So, we have an office in 
Portland, Maine and that office in Portland, Maine is actually 
there to go and liaison with all law enforcement agencies no 
matter how big or small they are in your State.
    Mr. Poliquin. OK.
    Yes, sir.
    Mr. Nevano. I am familiar with your AOR being from New 
England and I know that we have multiple task forces. We have 
an office in Portland, Maine; Bangor, Maine; as well as 
Houlton, Maine. And I know that we have several task forces in 
those areas where we work every day and collaborate with State 
and local law enforcement officers in your district.
    Mr. Poliquin. Great. Well, thank you very much, and I do 
want to--
    Chairman Pearce. The gentleman's time is expired.
    Mr. Poliquin. How do you divide your loyalties between the 
Red Sox and the Nationals if you are from New England? It is 
not easy.
    Thank you, Mr. Chairman. I yield back my time. The witness 
does not have to answer that question.
    Chairman Pearce. It was not the lapse of time. It was your 
problem with the last statement. Thank you.
    But now, I recognize the gentlelady from New York, Mrs. 
Maloney, for 5 minutes.
    Mrs. Maloney. Thank you. I thank the Chairman for yielding.
    Mr. Nevano, first of all, I would like to thank all of the 
panelists for being here. But, Mr. Nevano, I am sure you are 
aware of what is happening at our southern border. Children 
including babies are being ripped out of their parents' arms 
and these people were just merely looking for a better life for 
their families here in the United States. It is nothing short 
of government-sanctioned child abuse and runs counter to 
everything that we stand for as a Nation.
    I have seen photos of children in cages, heard recordings 
of children crying, and spoken with fathers at a detention 
center this past weekend in New Jersey where they came legally 
seeking asylum and were put into detention prisons. And one 
father said, at three o'clock in the morning, they came and 
tore his daughter from his arms. And just last night, the 
Associated Press reported that babies and toddlers are being 
shipped literally hundreds of miles away from their parents to 
be housed in so-called tender age facilities.
    Make no mistake. I don't care what they are called. These 
are prisons--prisons for babies. And has this Administration no 
soul? Have they no basic human empathy? This is not governance. 
This is not enforcing existing law. This is law that was made 
up by this Administration. And it is stone cold evil and is 
entirely the choice of this Administration and a reflection of 
a heartless ideology.
    So, my question, Mr. Nevano, is that surely many ICE agents 
are mothers and fathers in addition to their role with the 
agency. Is there any concern among your colleagues about the 
irreparable damage this policy of separation will have on these 
children?
    Mr. Nevano. Congressman, thank you for your question. 
Again, working for Homeland Security Investigations, we are not 
involved in that aspect of what you are speaking about. I am a 
parent and of course I understand exactly what you are saying. 
I have been doing this job for 27 years. I am a law enforcement 
officer and I certainly understand what you are saying.
    But I am not here to comment on that because I am here to 
testify on virtual currency. I would be happy to take any 
specific questions you have back for the record.
    Mrs. Maloney. Well, this Administration has deliberately 
chosen this path and would you agree that the Administration 
has the authority to change this policy? But now I know you are 
not going to answer, but I do believe they could change it.
    But before I close, I would like to play a very troubling 
recording that has been widely circulated in the news this 
week.
    [Audio recording played.]
    Mrs. Maloney. Well, I just want to close by saying as a 
mother of two children, I find this policy absolutely 
unconscionable. I cannot imagine what it is like to have your 
children torn from your arms and these are people that are just 
seeking a better life for their families. They are coming here 
seeking asylum. We have always been a beacon of hope to the 
world, and persecuting and separating children from their 
families is just un-American and just plain wrong.
    And it is an outrageous policy. It needs to end and we need 
to make sure the Administration absolutely never does it again. 
I thank you very much and I yield back.
    Chairman Pearce. The gentlelady yields back.
    The Chair would now recognize the gentleman from Ohio, Mr. 
Davidson, for 5 minutes.
    Mr. Davidson. Thank you, Mr. Chairman, and thank you to our 
witnesses, I appreciate your expertise on financial crimes 
enforcement, illicit finance, and particularly related to 
cryptocurrencies today. Hopefully, we can stay on topic during 
my 5 minutes, I will try to stay focused on the topic at hand. 
Because it is hard to get these hearings scheduled, so thank 
you, we can't change course on hearings all the time because of 
the news of the day, pressing as it is, I trust that we are on 
a path to a better policy in all sorts of arenas, including 
this one which we are here to work on.
    So, the past several years I have been watching the growth 
of digital assets and cryptocurrencies and I am excited about 
the opportunities they create. And I am curious just in terms 
of framing this issue, it is very important that your tools in 
your kit bag stay in compliance with current laws. And we have 
illicit finance denominated in U.S. dollars, correct? Correct?
    Mr. Novy. So, Congressman, it could be denominated in a 
number of things, the cost or the value of digital currency--
    Mr. Davidson. No, no. I am not talking about 
cryptocurrencies, I am just--the cash, cash in bags, duffel 
bags of cash, hay bales full of cash, ship containers full of 
cash, rail cars full of cash, suitcases full of cash, we 
transact in cash, right?
    There is also illicit finance in hawala networks, right? 
These things aren't illegal, we are looking for ways to be able 
to--U.S. dollars aren't illegal, carrying cash in a satchel is 
not illegal. Though we have set trip wires in place like 
crossing a border with too much cash without reporting that 
they are crossing a border with too much cash. These are the 
things that help you catch that.
    Still struggling last I heard about hawala networks and 
things like that. Though operating a hawala network isn't 
illegal, operating one to do illicit things is. And I guess, 
how do we apply those sort of kit bag things to 
cryptocurrencies so that we protect the use of 
cryptocurrencies, yet have the trip wires that help us detect 
illegal activity with the cryptocurrencies?
    Mr. Nevano. So, when we conduct our investigations, as you 
are mentioning all tools in our tool bag are used, whether it 
is traditional schemes to attack money laundering, which would 
be as you are mentioning: Bulk cash smuggling, third-party 
money laundering, trade-based money laundering, we also--as my 
colleague from Secret Service mentioned, use of confidential 
informants, use of undercover operations, whatever we can do to 
basically detect, disrupt, and dismantle those organizations, 
whether they are using the traditional methods that you are 
speaking about, or cryptocurrencies, we are trained to actually 
attack the problem as it exists.
    Mr. Davidson. In general, when something moves across an 
electronic format, is it easier to have record keeping on that 
than say hawala or cash? Even cryptocurrencies? There is a 
record, right? A searchable record or queriable record?
    Mr. Novy. So, Congressman, the answer is usually yes. 
Usually when it creates a record there is an electronic record 
that can be followed. However, in virtual currencies sometimes 
it can be obscured through tumblers or mixers, or something 
along those lines as well. So, there is a record if you can 
find it, but sometimes it is a little bit harder to find.
    Mr. Davidson. OK. And so, additional guidance has been 
given to provide compliance as money service businesses for 
people that are doing these transactions in the U.S. We have 
places that don't comply with those laws just like we have it 
for people who don't comply with it for wires and other ways 
that we do it with cash.
    I am concerned about, in the States, we have all sorts of 
regs that are duplicative. Wyoming has some laws related to 
crypto, but so does New York. I am not sure why New York needs 
such a heavy-handed AML provision, do you view the duplication 
as counterproductive, would it be easier to have a uniform reg 
across the country or is it easier to have State-based systems 
as well?
    Mr. Ott. Well, Congressman, for FinCEN's perspective, of 
course we are on the Federal level, but many we recognize that 
we work very closely with some of our State regulators as well, 
they adopt many of the similar provisions as are found in the 
Bank Secrecy Act, and what we find in terms of the biggest 
challenge that we have in regulating virtual currency is in 
fact, an inconsistent or lack of consistent AML CFT regulations 
internationally that open up vulnerabilities within the United 
States. And I believe, while we are working with our foreign 
counterparts to try to correct that situation, feel that there 
will still be a vulnerability until we have that international 
cooperation.
    Mr. Davidson. Thank you, my time has expired.
    Chairman Pearce. The gentleman's time is expired, the Chair 
will now recognize Mr. Vargas for 5 minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman, I appreciate 
the opportunity. Again, I want to thank the three witnesses 
here today, as I especially want to thank them for your 
diligent work against illicit use of cryptocurrency, especially 
in sex trafficking and drug trafficking. Again, thank you very 
much. I do, however, want to ask some questions to Mr. Nevano, 
I am taking a look here at the information that you sent to us 
and it does say, U.S. Immigration and Customs Enforcement right 
at the top.
    And I think when you were introduced, we heard that you had 
more experience than your present job. Could you repeat again, 
your career has been long, it has been 27 years in law 
enforcement and we appreciate that, what other experiences, 
what other jobs did you have with ICE?
    Mr. Nevano. Congressman, I started my career as an 
immigration inspector. That is where I started my career. I 
became a special agent. I worked my way up to be a group 
supervisor. Assistant special agent in charge. As you are 
probably aware, in 2003, Immigration Naturalization Service and 
Customs actually merged to form Immigration and Customs 
Enforcement, Homeland Security Investigations. Since my time in 
headquarters, I have worked as a unit chief in asset 
forfeiture, I was the chief of staff for the deputy director of 
Immigration and Customs Enforcement. And I was also now in my 
position, I am the Deputy Assistant Director for Illicit Trade, 
Travel, and Finance.
    Mr. Vargas. So, you do have quite a bit of experience 
beyond simply working in the position that you have today, I 
think some of the questions that we were asking of you were 
questions maybe that you do have some experience on. I do want 
to ask some myself, are you familiar with the family--the 
Family Case Management program?
    Mr. Nevano. I have heard of it, sir. I know it is part of 
the enforcement removal operations portfolio; I am not 
intimately, though, knowledgeable about it.
    Mr. Vargas. OK. It had an almost 100 percent court 
appearance rate, so this is where the families were not 
separated instead they were able to stay together, and then 
they had to come back for court appearances, it almost had a 
100 percent rate of people coming back for their court 
appearance, it was very, very successful.
    It didn't--they did this for families that weren't flight 
risks and they weren't dangerous, it was quite successful, I 
don't know why we stopped it. But that is one of the reasons 
why there has to be the separation of families the President 
says, there does not have to be, when, in fact, the President 
claims the DHS is required to separate families under current 
law, I don't understand, maybe you could explain that to me.
    Contrary to claims by the Attorney General, the Bible in 
Romans 13, which I know well, I studied to be a priest for a 
number of years, it is not statutory authority. It doesn't 
justify this horrific and unconscionable policy. But can you 
point to any statutory authority mandating that families be 
separated because, I can point you to these--the Family Case 
Manager program that didn't do this, didn't separate the 
families?
    Mr. Nevano. I am not familiar with any statutes that 
require that, Congressman.
    Mr. Vargas. I can tell you this and I think you would agree 
with this, I represent the border in California, and I do go 
and visit not only with ICE but the CBP and BP, Border Patrol, 
I can tell you this what they are doing today, your agents, 
they are bringing diapers that they are paying for themselves, 
milk for kids, other things that these children need, because 
they know they are going to be separated, and they think 
because like you, they are parents, they think they need these 
things.
    If you ask your own agents out there, you will tell--they 
will tell you, they do not like what they are doing, they are 
not happy about it, they are spending their own money trying to 
help these kids, are you familiar with any of that?
    Mr. Nevano. Congressman, again, I think you are speaking 
about Border Patrol agents--
    Mr. Vargas. No, no. I am also speaking about the CBP, and I 
am also speaking about ICE.
    Mr. Nevano. CBP is not under my directorate, so again, our 
special agents more than likely, unless they are investigating 
some type of transnational criminal organization entering the 
border, would not be involved in some of the circumstances you 
are speaking about.
    Mr. Vargas. But I think you are being very technical, 
because you do have experience within all of the range there, 
if you--as you would under--as you described to me earlier, you 
were in fact the line officer, you did in fact have--
    So, what I would tell you is this, this policy that you 
have now, I wish you would go back and look at those and talk 
to your agents on the look--on the ground, they don't like it, 
they know it is not their values. When you go and you see like 
I had the opportunity to see on Monday these children, they 
just want their moms, they just want their dads. What we are 
doing is wrong. Certainly not based on Christianity or any type 
of religion that I am aware of, and it has to be reversed.
    Your own agents, if you talk to them, they will tell you, 
and you can go there and see the diapers that they buy, the 
food that they buy for these children, because they are 
concerned about their own safety, the safety and the wellbeing 
of these kids when they are separated from their moms, they are 
parents too. If you would like to answer the questions.
    Mr. Nevano. Congressman, in my 27 years career, I have 
worked under several different Administrations, and during 
those Administrations with the change, laws continually change, 
the way we are enforcing laws. And, again, what you are 
speaking about now in the current environment I am not involved 
with what you are speaking about. We are involved in the 
aftermath, if there are individuals who are being so exploited, 
who are victims who are being supported by organizations, that 
is where we will come in to try to look at the facilitate--the 
people who are facilitating this activity.
    Mr. Vargas. Thank you, I yield back. Thank you.
    Chairman Pearce. The gentleman's time has expired. The 
Chair would now recognize Mr. Budd for 5 minutes.
    Mr. Budd. Thank you, Mr. Chairman. And again, thanks to the 
witnesses for your time today, for your expertise, all you do 
for security for our country. And I want to shift a bit to the 
topic, the original topic at hand, terror financing and virtual 
currencies. So, the Foundation for Defense of Democracies or 
FDD, they have been a great resource to me and staff on issues 
like this. And they recently reported the first publicly 
verifiable instance of an online propaganda unit, it was based 
in Gaza, in the Gaza Strip, calling for Muslims worldwide to 
donate funds for terrorist purposes. They only raised a few 
hundred dollars, but even this is an early sign, I am thinking, 
and it is disturbing that terrorist financing mechanisms are 
evolving using this technology.
    I have also seen evidence of Hamas groups embracing the 
technology and promoting Wallet apps like Telegram. So the 
question is, what is the likelihood that we see more propaganda 
or terrorist campaigns from groups like this in the future? And 
what can be done to prevent it from happening?
    Mr. Nevano. I am familiar with the article that you 
mentioned and I would agree with you that I believe there were 
only two individuals that actually volunteered to donate, it 
was somewhere in the vicinity of $500 that was--that was 
received, so although it was a low turnout as far as 
volunteers, it did something that law enforcement would be 
concerned about, because as virtual currency continues to grow, 
it is certainly an avenue that could be used for those types of 
propaganda situations to collect money in support of terrorist 
organizations.
    Mr. Budd. So even at a few hundred dollars, we still 
shouldn't dismiss something like this?
    Mr. Nevano. Absolutely not.
    Mr. Budd. OK. Thank you. Can you tell me what factors are 
limiting terrorist exploitation of the virtual currencies, 
basically what is working, and how that should impact the 
counterterrorism community, and Congress' focus on this front?
    Mr. Nevano. So one of the challenges I think is terrorist 
organizations are used to the traditional money laundering/bulk 
cash smuggling, hawala situations. I think one of the 
challenges that we may be facing for the traditional terrorist 
organizations that we are speaking about, is maybe some of the 
resources logistics, some of the locations that they are 
involved, and that they don't have the technology right now, 
but, over time with, as technology advances, et cetera, that 
certainly would be a concern.
    In lone wolf terrorist type of situations where you may 
have a domestic terrorism situation, that, to me, would be a 
concern, because they would have the technology, they would 
have the access to the internet, et cetera, working right at 
home from their computers, and that certainly would be a 
concern.
    Mr. Budd. Thank you. Gentlemen, do you care to comment on 
what is working and how you would ask Congress to focus on this 
front?
    Mr. Novy. From the Secret Service standpoint, we are--our 
area is not terrorism or counterterrorism, but the--what we see 
is though, is that on the criminal side with the exploitation 
of digital currency to move forward their crimes, we know that 
terrorists look to gain education from how other criminals are 
doing things. And so, how other criminals are moving money, and 
then they can learn from that. So from my expertise, I see it 
going, as I see it rising in criminal activity, I would assume, 
that, at some point, the terrorists will start learning from 
the criminals.
    Mr. Budd. Good.
    Mr. Ott. From FinCEN's perspective, I would just mention 
that we work very closely in partnership with the financial 
institutions in terms of our outreach and we see, have seen 
from 2016 to 2017, a 90 percent increase in the BSA filings 
involving some type of cryptocurrency across the variety of 
criminal activities, whether that is terrorist financing, 
narcotics trafficking, money laundering, or other illicit 
activities. So to that extent, we are very pleased with the 
increase of the type of law enforcement intelligence that we 
can share with our counterparts.
    Mr. Budd. Thank you all for this, a little bit different 
type of a question, but I would like to get law enforcement's 
perspective on this, and it is a hot topic right now especially 
here in D.C. as we look at this as legislators, but how should 
we classify virtual currencies? Is it a security, is a 
commodity, another form of property? And what is the 
appropriate framework for us to use to work on legislation 
addressing virtual currencies?
    Mr. Ott. Thank you, Congressman. I think--from again, from 
FinCEN's perspective, we certainly recognize that this is a 
complex area, we focus on money transmissions, specifically. So 
our concern is the transmission of either currency, finds, or 
what we say is a subset--of other value that substitutes for 
currency. And we have said that in our guidance and in our 
legislation that the current virtual currency is also included 
in that definition of other value, that substitutes for 
currency.
    So we feel that certain regulatory regime right now, that 
we have in place, is sufficient to cover virtual currency, and 
to be--provide the correct reporting. And I would also say that 
that applies to whether or not an MSP or a money transmitter is 
located within the continental United States or outside the 
United States, but does substantial, either substantial 
business within the United States or other.
    Mr. Budd. My time has expired, I yield back.
    Chairman Pearce. The Chair would now recognize the 
gentleman from Georgia. Mr. Scott for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman. I am sitting here and I 
am absolutely amazed. You all are sitting here and just 
seemingly unknowledgeable about one of the greatest tragedies 
that we are faced with, with the treatment of these little 
children at the borders.
    Now, Mr. Nevano, several Members have asked you, and 
questioned you, and reminded you that you do have 
responsibility here, you keep saying, you don't. Your entity 
deals with MS-13s, the gangs, the drug cartels, all of the very 
reasons that we got in this situation today. These people are 
putting their children first. I looked up there, I saw this 
picture of this little girl, I wish they would put it back up 
there at the truck and she is looking up, and you know what I 
saw from that?
    I said what the Lord said, ``Suffer the little children to 
come unto me: for of such is the kingdom of God.'' If you 
really understand that scripture is it because people were 
trying to push this one up to see, that one up, but He said no, 
it is the children who come first, that is why this Nation is 
crying out to stop this meanness.
    There is the picture right there, look at it, Mr. Nevano, 
there it is right there, would you mind? That is the image of 
the United States of America, we have to stop it now. If you 
can't give information to us, you are the representatives of 
this Administration, that ain't the Democrats causing this, it 
is President Trump, and take a message back to him. That the 
Lord said, ``First, suffer the children to come unto me: for of 
such is the kingdom of God.''
    That is the scripture that they should be admonishing. Tell 
me, Mr. Nevano, when was the first tolerance, the zero 
tolerance policy first put into place?
    Mr. Nevano. Congressman, I am not specifically aware of 
when it was put in place, my recollection from hearing it in 
the news was maybe sometime around April.
    Mr. Scott. How many children have been reunited since the 
zero policy has been put in place?
    Mr. Nevano. Again, I do not work in that directorate, so I 
do not have that information.
    Mr. Scott. And you can see from the pictures there, that 
most have not been reunited. What is going to happen to these 
children? How many people who legally entered this country to 
seek asylum have been detained as a result of this policy?
    Mr. Nevano. Again, I do not have those numbers with me.
    Mr. Scott. How many children separated from their families 
on the U.S.-Mexican border have had to enter the foster homes? 
The foster care as a result of this Administration's decision?
    Mr. Nevano. I do not have that information.
    Mr. Scott. Yes. How many children may never see their 
mothers or their families again because of what this 
Administration has decided to do on the borders? Think about 
it.
    I am telling you, man. We have to stop this. If there's any 
message to take back to the White House, tell them to stop it. 
This country has been blessed by God. Divine intervention is 
throughout our history, from the soldiers at Valley Forge, to 
those who went to Montezuma fighting. We are the beacon of 
hope, liberty, freedom of the world. The little girl on these 
pictures looking up, that ain't America. Please, will you take 
that message back to the President?
    Chairman Pearce. The gentleman's time has expired. The 
Chair would now recognize Mr. Crist for 5 minutes.
    Mr. Crist. Thank you, Mr. Chairman. I just have a few 
questions for you, Mr. Nevano. How many children have been 
separated from their families since the Trump Administration 
announced the zero tolerance policy on April 6, 2018?
    Mr. Nevano. I don't have that information. I am happy to 
take it back for the record, and see if our enforcement removal 
or our other component within DHS can get that information for 
you.
    Mr. Crist. Thank you. And I will provide these for you 
before you leave. What is the plan to reunite the children with 
their parents?
    Mr. Nevano. Again, I don't--I am not involved in the 
policymaking on that side of the enforcement house, I don't 
have that information, but, again, I am happy to take that back 
for the record.
    Mr. Crist. Physically, where is your office?
    Mr. Nevano. It is located at 12th & D Streets, sir.
    Mr. Crist. And your colleagues there, have you had any 
conversations about what is all over the news for the past 72 
or so hours? Any concern about it?
    Mr. Nevano. I watch the news every morning like everyone 
else, and obviously see what is going on, but it is not a topic 
of conversation within my directorate, because, again, we are 
not involved in that activity.
    Mr. Crist. Nobody there has talked about this?
    Mr. Nevano. Absolutely, it is on the news, everyone is 
watching it, but it is not a conversation that I have. I was 
here to prepare for virtual currency and that is how I spent my 
past week or so preparing for this hearing on virtual currency.
    Mr. Crist. You have dedicated your life, it sounds like to 
appropriate law enforcement?
    Mr. Nevano. Twenty-seven years, I have.
    Mr. Crist. Do you think this is the right kind of law 
enforcement for the United States of America?
    Mr. Nevano. Again, I am not here to give my opinion, I am a 
sworn law enforcement officer, that I was sworn to defend the 
laws of the United States, but I am not here to comment on my 
personal situations, I am happy to take any questions you may 
have, but--
    Mr. Crist. I am not asking about your personal situation, I 
am just asking your opinion, sir.
    Mr. Nevano. I don't have an opinion on that, sir.
    Mr. Crist. OK, that is interesting. You have no opinion on 
this?
    Mr. Nevano. I have an opinion on what my job is and what I 
am required to do and--
    Mr. Crist. No, I am talking about what we are talking 
about.
    Mr. Nevano. Congressman, anyone who looks at that picture 
obviously would have concerns looking at that picture. I faced 
several of these situations in my career as an immigration 
inspector, and what I--what I have done is if I was directed to 
do something, I would do what the direction of the--my 
superiors in my Administration told me what to do.
    Mr. Crist. Even if you felt it was wrong?
    Mr. Nevano. That is my job, I swore on the oath to uphold 
the Constitution of the United States.
    Mr. Crist. But what if it is not a constitutional act they 
are asking you to do?
    Mr. Nevano. It may be a directive that we are following 
that is from our leadership, and that is what I do on a day-to-
day basis, if I get direction from my leadership, I follow what 
my leadership's directives are.
    Mr. Crist. Follow right or wrong?
    Mr. Nevano. It is not my decision to make, Congressman.
    Mr. Crist. Yes, it is. Yes, you are a citizen of this 
country, you don't have to do everything you are told to do if 
you think it is wrong and immoral.
    Mr. Nevano. If there was something that was immorally 
correct or is not legal, then obviously I would not do that. 
But--
    Mr. Crist. I am glad to hear that.
    Mr. Nevano. Yes, absolutely. I have 27 years, and I have 
been doing my job for 27 years, I am a family member, 
obviously, situations like that when you see that, touch 
everyone's heart, but, again, we are not the ones to blame for 
this situation, meaning me as a special agent within my 
Homeland Security directorate, if laws need to be changed, they 
need to be changed, but it is not me to make the change in the 
law.
    Mr. Crist. I am not blaming you. I didn't say that. Who do 
you think is to blame for this?
    Mr. Nevano. I think obviously the laws need to be changed, 
I am not here to say who is responsible for it, but if the laws 
need to be changed, it is not for me as a deputy assistant 
director, at my level, to be making those changes.
    Mr. Crist. Do you know if any children have been physically 
harmed or died while in this custody since April?
    Mr. Nevano. That I am not sure about.
    Mr. Crist. Can you find out?
    Mr. Nevano. I am happy to take any questions you have and 
get it to the appropriate locations within the Department of 
Homeland Security.
    Mr. Crist. Thank you for your help.
    Chairman Pearce. The Chair would now recognize Mr. Heck for 
5 minutes.
    Mr. Heck. Thank you, Mr. Chairman, thanks to all the 
witnesses for being here today. I am not sure who can answer 
this question, anybody that has the answer I would appreciate. 
How long is the list of mothers with young children who have 
been detained at the border are suspected or known to have used 
cryptocurrency for illicit purposes?
    Mr. Nevano. I am not aware of that.
    Mr. Heck. Any? So we can at least eliminate that category 
of reason to be afraid of young mothers with young children? 
Mr. Nevano, you have had a distinguished career, and I 
sincerely thank you for that at ICE. I would like to ask you if 
you believe that the current resources provided ICE and the 
staffing levels that result therefrom are 100 percent 
sufficient for the agency to fulfill its mission in a robust 
fashion?
    Mr. Nevano. Congressman, we have plus or minus 6,500 
special agents within the Homeland Security Investigations, we 
could obviously use more--
    Mr. Heck. No, sir. I asked about agency overall, drawing 
upon your 27 years, the question is very straightforward, does 
the agency overall, from where you sit, based on your 27 years 
of experience, have 100 percent of the resources and staffing 
it needs in order to fulfill its mission in a robust fashion?
    Mr. Nevano. Again, I am familiar with my directorate which 
is Homeland Security Investigations, I am not familiar with the 
other components within DHS, there are over 22 components 
within DHS, I am not familiar with every other component.
    Mr. Heck. Is it your impression you have all the staffing 
and resources you need?
    Mr. Nevano. Within Homeland Security Investigations, we 
could certainly use more.
    Mr. Heck. So, if that is also true, if the other divisions 
at ICE, we can reasonably and logically conclude that if they 
were asked to do anything additional, it would only come of the 
compromise or result in a compromise of their effort to fulfill 
their mission?
    There is a Federal prison, Mr. Nevano, in Victorville, 
California where we now have about a thousand ICE detainees. Do 
you know whether or not the guards there have been trained to 
deal with the non-criminal occupants and immigrants at that 
facility?
    Mr. Nevano. No, I am not, Congressman, I am not aware.
    Mr. Heck. Do you know whether or not the immigrant 
detainees are being accorded the same rights and privileges as 
the prisoners, violators of crimes, such as visitation and 
access to counsel and recreational opportunities?
    Mr. Nevano. I am not familiar with the situation in that 
facility.
    Mr. Heck. I have a facility in my district that is called 
the Selma Carson Home which 16- and 17-year-old unaccompanied 
boys are kept, do you know if the current population includes 
anyone that has been separated from their parent?
    Mr. Nevano. I do not.
    Mr. Heck. I guess I would like to make an observation if I 
may about this overall issue, because the truth of the matter 
is, I completely understand somebody that is deeply concerned 
about our Nation's security in general, and as it even relates 
to some degree with respect to borders.
    What is difficult for me to understand is the obsession on 
just one border, and the obsession on only one fix to the issue 
there. I guess I can't forget the fact that a goodly number of 
the people who helped plot and implement the 9/11 attack on our 
soil, the deadliest in our Nation's history, came in through 
the northern border, not a lot of talk about enhanced northern 
border security. And I am very mindful of the fact that nearly 
50 percent of the people who are here without the appropriate 
documents came in legally and just stayed.
    And yet, all the focus seems to be on one of our four 
borders, the water on our east and west take care of that, 
nothing on the north for all practical purposes, nothing on the 
way the people who come here legally but stay.
    I guess, in simpler terms, this strikes me as if somebody 
owned a home and they felt that they had a security risk of 
being robbed, they decide to build two walls, not four, two, in 
order to protect themselves, or even one wall, leaving the 
other two or three open. I guess that would be one way to try 
to protect themselves, not very effective, or they could buy an 
alarm system, or they could put up increase lighting, or they 
could trim the bushes that provide cover for people, or they 
could buy a dog, or, my point being, that the issue of security 
has to be solved intelligently. Not just with a half-baked, 
half idea on how to provide for our Nation's security. Thank 
you, Mr. Chairman, and I yield back.
    Chairman Pearce. The gentleman's time has expired. The 
Chair would now recognize Mr. Capuano for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman. Thank you gentlemen 
for being here. And honestly, I was looking forward to having a 
hearing on the subject matter that was advertised, but with 
today's crisis I assume by now you have figured out we just 
can't do that. We can't remain silent.
    Mr. Nevano, I see you have an excellent education, I am a 
B.C. guy, too. My son as well. I don't remember being taught by 
any of the Jesuits it was OK to separate parents from children, 
and I want to be real clear, you have been incredibly 
professional under some tough questionings, and I respect your 
position, and I am not going to try to make you, put you in a 
tough position, because I think you have done a good job today 
defending the indefensible or actually avoiding defending the 
indefensible. And I really do, I appreciate what you are doing, 
and I don't want to put you in a tough position.
    But, you are the guy who is here, you are the guy we got, 
and I am sorry, but is there anybody behind you who can answer 
the questions that have been asked today? I don't know, 
something, anybody else from ICE who are here that can answer 
these questions?
    Mr. Nevano. I don't believe there is anybody with me here 
today from Customs and Border Protection Enforcement and 
Removal operations that may have some of those answers to your 
question.
    Mr. Capuano. OK. I expected that. I know you have heard the 
audio before, but I want to play that audio just one more time, 
because I do have a question related to it. I don't know 
exactly all this technology stuff, but there's a guy in the 
backroom doing some magic, so.
    [Audio recording played.]
    Mr. Capuano. I think that's enough, I think that is all we 
need. I don't know. I appreciate it, thank you. Did you hear 
any MS-13 members in that audio?
    Mr. Nevano. I did not.
    Mr. Capuano. I didn't either. Any other gang members that 
you could tell that secret code that we could tell that these 
children were somehow associated with an international gang 
that came here to terrorize us?
    Mr. Nevano. I did not.
    Mr. Capuano. No, I didn't either. So, it was interesting 
that the President was able to hear that. I don't know, I know 
you have been testifying for a while, I don't know if you are 
caught up on the news, you probably not, but if you--it has 
been announced the President has just signed an order reversing 
his previous order. So, do you--I assume your agency is going 
to get some new orders.
    But I am interested, I just heard the last 3 days, the 
President of the United States telling me repeatedly on the 
news, very publicly that he didn't have the authority to change 
his own zero tolerance policy, and now he has done it. Could 
you explain to me how the President could say on, for 3, 4, or 
5 days in a row we didn't have the authority, and now somehow 
have the authority?
    Is anybody at ICE going to ask questions as to who actually 
has the authority to make a determination whether children can 
be ripped from the arms of their mother?
    Mr. Nevano. I don't have that answer for you today, sir.
    Mr. Capuano. No, I am just--I am just curious, because it 
strikes me, if the President says for day, after day, after day 
on T.V. that he doesn't have the authority and then now he 
does. I don't know, but I am just guessing that if that was 
somebody else that he didn't like that the President would say 
that person was lying, and has been lying for day, after day, 
after day.
    I am just--I am just confused how the President can do 
that. And I know that, again, I know that you are going to 
carry out the orders, and I respect that, I really do, I 
respect that. But at some point, somebody at DHS, somebody at 
ICE is going to have to look in the mirror and ask themselves 
whether they want to keep doing this. Are you from Mass or just 
were lucky enough to go to B.C.?
    Mr. Nevano. No, I am from Massachusetts.
    Mr. Capuano. And you--do you remember the name Elliot 
Richardson? Our former State Attorney General who became the 
U.S. Attorney General?
    Mr. Nevano. I am familiar with that name.
    Mr. Capuano. Elliot Richardson quit. When the President of 
the United States ordered him to take action he found to be 
immoral, he quit his job. Now, I am not asking any line guy, 
27-year-career guy to do that. That is a little much. But 
somebody somewhere at DHS and ICE, at some point, is going to 
have to ask themselves, when is it too much? When are the 
orders too much? I can't do them.
    And, again, I am not suggesting it should be you or anybody 
in particular, and I really hate even putting that question to 
a career guy. I really would rather put that question to a 
political appointee, that would be people above your pay grade, 
and I get it, but again, and I apologize as I did earlier. I 
have to say some of these things to you, I don't really mean to 
direct them to you, you seem like a nice guy doing your job.
    But until and unless we have access during a public forum 
to the people that can answer these questions, and can make 
those decisions, unfortunately you are stuck in. And I actually 
feel bad that your superiors put you in this position today to 
have to take this abuse. And I--and again, it is not directed 
to you, but I would be very clear, it is unequivocally directed 
to your superiors who do have the authority to say no, and 
should have said no to this policy. Thank you, Mr. Chairman.
    Chairman Pearce. The gentleman's time has expired. I would 
like to thank our witnesses for your testimony today. The Chair 
notes that some Members may have additional questions for this 
panel, which they may wish to submit in writing. Without 
objection, the hearing record will remain open for 5 
legislative days for Members to submit written questions to 
these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is adjourned.
    [Whereupon, at 3:43 p.m., the subcommittee was adjourned.]

                            A P P E N D I X



                             June 20, 2018
                             
                             
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